FCC order on business line pricing may not fully reregulate

Members of a coalition pushing for pricing changes on business lines say a pending FCC proposal is a good first step

By Grant Gross | 21 June 12

A U.S. Federal Communications Commission proposal to address the price of dedicated telecom and broadband lines for businesses would stop large telecom carriers from seeking new price flexibility but would not scrap the underlying rules that allow price deregulation, said members of a coalition calling for changes in the rules.

The order circulating at the FCC is a positive move in a seven-year effort to get the agency to reexamine price deregulation in the so-called special access market for business telecom services, said Thomas Jones, a lawyer representing TW Telecom. "This is a very welcome first step," Jones said Thursday. "It is not the entire enchilada."

The proposed FCC order would not go back and fix markets where special access prices have been deregulated, said Jones and other members of the NoChokePoints Coalition, a group pushing for an FCC overhaul of special access pricing rules.

The current FCC rules allow AT&T and Verizon Communications to significantly overcharge for special access, coalition members said.

An FCC spokesman declined to discuss the contents of the special access proposal, which is not yet public. But there is "broad agreement" that the pricing deregulation is not working as intended, he said.

"There are serious allegations that this mismatch is hindering competition, causing real harm to American consumers and businesses, and slowing investment and innovation," he added in an email.

AT&T and Verizon control about 80 percent of the special access market, coalition members said. U.S. businesses rely on special access services -- dedicated lines ranging from 56 Kbps to Ethernet speeds -- for broadband, for credit-card processing, for cash machines and other telecom services. Mobile carriers and competing telecom carriers use special access for backhaul.

The NoChokePoints Coalition wants the FCC to scrap 1999 rules that allow large telecom carriers to seek price deregulation of special access services. The FCC approved the deregulation in anticipation of competition from smaller telecom carriers, but the competition never materialized, members of NoChokePoints said.

TW Telecom, one of the biggest competitors to AT&T and Verizon in the special access market, owns lines to about 16,000 of the estimated 3 million[m] office buildings in the U.S., and is connecting to an additional 1,800 buildings a year, Jones said. "I am certainly going to be dead" before TW Telecom becomes a major competitor in the market, he said.

It makes no sense to reregulate slow DS1 and DS3 connections when businesses and mobile carriers are switching to faster Ethernet services not covered by the FCC pricing rules, said Bob Quinn, AT&T's senior vice president for federal regulatory affairs. New regulation would hurt telecom carriers' ability to install faster fiber and Ethernet services, Quinn said.

"The focus ought to be forward looking, not backwards looking," Quinn said. "We'll spend an enormous amount of time talking about the pricing framework for technology we should be expediting people to move off of."

The FCC proposal comes during a "difficult investment environment for wireline infrastructure," AT&T said in a Tuesday filing to the FCC. About 65 percent of businesses and other organizations now use Ethernet services, AT&T said.

Demand for DS1 and DS3 services are declining at a rate of 20 percent a year, Quinn said.

But many businesses still use DS1 and DS3 lines, said Colleen Boothby, executive director of the Ad Hoc Telecommunications Users Committee, representing several telecom customers. One Ad Hoc member buys 18,000 DS1 lines, she said.

Many businesses buy DS1 and DS3 lines because that's all they need, Boothby said. "That's the service that works," she said. "There's nobody watching movies over that network, and there's nobody gaming over that network."

NoChokePoints members questioned why AT&T is fighting against pricing changes if it sees DS1 and DS3 lines as obsolete technology. "If businesses are moving to Ethernet, then what are they so upset about? " said Maura Corbett, executive director of the coalition.

AT&T is opposed to changes in the pricing rules because the company doesn't want to litigate pricing in dozens of markets, Quinn said. "I don't want to go have to spend millions of dollars on lawyers," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is [email protected]